DOF wants mass transit system fixed before hiking automotive tax

The Department of Finance (DOF) said it is implementing higher excise taxes on automobiles only in 2018 to give the government enough time to fix the country’s mass transport system.

The restructured excise tax on automobiles is part of the first package of the proposed comprehensive tax reform program the DOF submitted to Congress in September.

The higher excise tax on automobiles, however, does not cover buses, trucks, cargo vans, jeepneys, jeep substitutes, single cab chassis, and special-purpose vehicles.

“If this thing is going to pass, it will probably be effective in 2018. So we have a year to fix it. So there, that’s the reason. By the way, we are not imposing this merely to make life hard for people. We are imposing this to finance [our]infrastructure needs,” Finance Secretary Carlos Dominguez 3rd said in a statement on Tuesday.

A highly progressive tax on automobiles is supposed to discourage the purchase of new cars and help stop the traffic congestion from getting worse while reducing air pollution and the carbon footprint.

Dominguez noted the whole point is to direct the people to take public transportation. That is why the government is investing in the bus rapid transit system and fixing the mass rail system which has been neglected in terms of maintenance over the years.

“So we are going to make public transport more available. We have to discourage new cars because just look at the traffic, It’s not moving,” the Cabinet official said.

The reforms covering the automobile excise tax is primarily a shift to an ad valorem system that simplifies the computation of the tax, Finance Undersecretary Karl Kendrick Chua said.

“Under the proposal, the tax brackets for the manufacturing price or import price can be indexed to inflation once every two years if the US dollar exchange rate is more than 10 percent. If the movement in the exchange rate is more than 20 percent, then the full movement of the exchange rate will be the basis for the indexation,” Chua said.

Under the DOF proposal, the tax for entry-level cars priced at P600,000 and below would go up from 2 percent to 5 percent, while luxury vehicles priced at over P2.1 million would be taxed 60 percent of the manufacture or import price from the current tax of P512,000 plus 60 percent in excess of 2.1 million.

Chua noted that the car industry has enjoyed a 10-year grace period of no tax increases.

“Even with a doubling of gasoline and diesel price between 2009 and 2011 to close to P45 and P60 per liter, automobile sales continued to grow strongly,” he noted.

The progressive tax system would have greater impact on the top 10 percent of households in terms of income, and increasingly the top 1 percent, Chua said.